Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other monthly debts have been paid.
About your qualifying ratio
For the most part, conventional loans require a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything.
The second number in the ratio is what percent of your gross income every month that can be spent on housing costs and recurring debt together. Recurring debt includes auto payments, child support and monthly credit card payments.
Some example data:
A 28/36 ratio
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, feel free to use our very useful Mortgage Pre-Qualification Calculator.
Guidelines Only
Don't forget these ratios are just guidelines. We will be thrilled to pre-qualify you to help you figure out how much you can afford.
BeneGroup, Inc. can answer questions about these ratios and many others. Give us a call: 4083956018.